Prof. C. K Prahlad brings up some good point about buying power of rural poor.
The Market at the Bottom of the Pyramid
The distribution of wealth and the capacity to generate incomes in the world can be captured in the form of an economic pyramid. At the top of the pyramid are the wealthy, with numerous opportunities for generating high levels of income. More than 4 billion people live at the BOP on less than $2 per day. The purpose of this book is to illustrate that the typical pictures of poverty mask the fact that the very poor represent resilient entrepreneurs and value-conscious consumers, and this chapter introduces this concept with some basic economics.What is needed is a better approach to help the poor, an approach that involves partnering with them to innovate and achieve sustainable win–win scenarios where the poor are actively engaged and, at the same time, the companies providing products and services to them are profitable
Table 1.1 The Dominant Logic of MNCs as It Relates to BOP
| Assumption | Implication |
| The poor are not our target customers; they cannot afford our products or services. | Our cost structure is a given; with our cost structure, we cannot serve the BOP market. |
| The poor do not have use for products sold in developed countries. | We are committed to a form over functionality. The poor might need sanitation, but can’t afford detergents in formats we offer. Therefore, there is no market in the BOP. |
| Only developed countries appreciate advanced and pay for technological innovations. | The BOP does not need technology solutions; they will not pay for them. Therefore, the BOP cannot be a source of innovations. |
| The BOP market is not critical for long-term growth and vitality of MNCs. | BOP markets are at best an attractive distraction. |
| Intellectual excitement is in developed markets; it is very hard to recruit managers for BOP markets. | We cannot assign our best people to work on market development in BOP markets. |
There Is Money at the BOP
The dominant assumption is that the poor have no purchasing power and therefore do not represent a viable market.
Let us start with the aggregate purchasing power in developing countries where most of the BOP market exists. Developing countries offer tremendous growth opportunities. Within these markets, the BOP represents a major opportunity. Take China as an example. With a population of 1.2 billion and an average per capita gross domestic product (GDP) of US $1,000, China currently represents a $1.2 trillion economy. However, the U.S. dollar equivalent is not a good measure of the demand for goods and services produced and consumed in China. If we convert the GDP-based figure into its dollar purchasing power parity (PPP), China is already a $5.0 trillion economy, making it the second largest economy behind the United States in PPP terms. Similarly, the Indian economy is worth about $3.0 trillion in PPP terms. If we take nine countries—China, India, Brazil, Mexico, Russia, Indonesia, Turkey, South Africa, and Thailand—collectively they are home to about 3 billion people, representing 70 percent of the developing world population. In PPP terms, this group’s GDP is $12.5 trillion, which represents 90 percent of the developing world. It is larger than the GDP of Japan, Germany, France, the United Kingdom, and Italy combined. This is not a market to be ignored.
Table 1.2 The Poor and High-Cost Economic Ecosystems
| Item | Dharavi | Warden Road | Poverty Premium |
| Credit (annual interest) | 600–1,000% | 12–18% | 53.0 |
| Municipal grade water (per cubic meter) | $1.12 | $0.03 | 37.0 |
| Phone call (per minute) | $0.04–0.05 | $0.025 | 1.8 |
| Diarrhea medication | $20.00 | $2.00 | 10.0 |
| Rice (per kg) | $0.28 | $0.24 | 1.2 |
Benefits to the Private Sector
We have identified the immediate benefits of treating the poor as consumers as well as the poverty alleviation process that will result as businesses focus on the BOP. It is clear that the consumers (the poor) benefit, but do the private-sector businesses benefit as well? The BOP market potential is huge: 4 to 5 billion underserved people and an economy of more than $13 trillion PPP. The needs of the poor are many. The case for growth opportunity in the BOP markets is easy to make. However, to participate in these markets, the private sector must learn to innovate. Traditional products, services, and management processes will not work. In the next chapter, we discuss a philosophy of innovation focused on BOP markets.
